Euro weakens to near 1.1450 as Fed raises rate for first time in three years
- EUR/USD edges lower to near 1.1460 in Thursday’s early Asian session.
- Fed raised interest rates and signaled further increases in borrowing costs in the coming months.
- ECB emphasized a data-dependent approach and won’t pre-commit to further steps on rates.
The EUR/USD pair declines to around 1.1460 during Asian trading hours on Thursday. The Euro (EUR) weakens against the US Dollar (USD) following an interest rate hike from the US Federal Reserve (Fed). The US Initial Jobless Claims data will be released later on Thursday.
The US central bank raised the benchmark interest rate by 25 basis points (bps) to a 3.75%–4.00% range at its September policy meeting on Wednesday, as widely expected. This marks the Fed’s first interest rate hike in three years.
Fed Chairman Kevin Warsh said during the press conference that inflation has been “too high ... for too long.” Updated projections the committee showed that a strong majority of Fed officials think another hike is possible later this year.
"Today’s decisive hike—supported by all FOMC members and paired with an upgrade in the 'dot plot' summary of economic projections—should go a long way toward restoring confidence in the Fed’s commitment to fighting inflation, and help remove a major headwind keeping the dollar restrained," said Karl Schamotta, chief market strategist at Corpay in Toronto.
Across the pond, the European Central Bank (ECB) raised its key interest rates by 25 bps last week. The central bank reiterated it won’t pre-commit to further steps after raising rates for a second time since the Iran war started. ECB President Christine Lagarde said that Eurozone inflation will stay elevated for some time and acknowledged the split in rate pricing.
Eurozone inflation concerns tempered as ECB questions market rate assumptions
Strategists at Rabobank highlight that the ECB is already pushing back against the pace of market repricing. They note that in her press conference last week, President Lagarde “refused to reaffirm that markets ‘understand the ECB’s reaction function well,’” which Rabobank construes “as a hint that the market may be moving faster than the policymakers like.” At the same time, the bank stresses that, “even though energy-driven inflation is set to increase further, price pressures are still mostly driven by that supply shock and there is no evidence that inflation is spreading,” suggesting the ECB may be less inclined to validate the more aggressive tightening path implied by current market pricing.
Technical Analysis: EUR/USD retains a negative outlook below the 100-day SMA
In the daily chart, EUR/USD retains a bearish near‑term bias as spot remains decisively below the 100‑day moving average (MA) and the Bollinger Bands (20) middle line. Price is also holding under the lower Bollinger Band, underscoring downside pressure, while the Relative Strength Index (14) around 31.9 hovers in oversold territory, suggesting that although the pair is stretched on the downside, selling interest still dominates as long as these overhead levels cap recovery attempts.
On the topside, initial resistance aligns with the lower Bollinger Band at 1.1485, followed by the 100‑day MA at 1.1550, which reinforces the broader bearish structure. Above that, the Bollinger middle band at 1.1605 and the upper band near 1.1720 form a wider resistance corridor, where any stronger corrective bounce would likely stall unless buyers reclaim and sustain levels beyond this cluster.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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